Budget 2022: Top Five GST Amendments Decoded

Finance Minister Smt. Nirmala Sitharaman announced the Union Budget 2022 yesterday, bringing in a host of reforms in infrastructure, e-vehicles, healthcare, and housing. With a 9.2% GDP growth rate estimated and GST collections around the Rs.1.4 lakh crore mark, she indicated that the Indian economy is on the right track to recovery post the COVID-19 pandemic.

The FM also announced the much-awaited tax laws surrounding digital assets. Budget 2022 saw updates to the GST law and customs-related changes on the indirect taxes front to propel the ‘Make in India’ initiative. Here, we decode the top five GST amendments put forth in Finance Bill 2022. 

1. GSTIN cancellation rules have become more stringent 

The Finance Bill 2022 amended Section 29 of the CGST Act for the cancellation of a GSTIN by an officer. In the case of a composition taxpayer, if they fail to file an annual return for three months beyond the 30th April deadline of the following year, their registration can get cancelled. For all other taxpayers, a six months consecutive default in return filing is now replaced with a consecutive tax period default as may be prescribed.

This shows that non-compliance with GST return filing will be dealt with far more seriously than in the past. Previously, there was a lot of leeway in the form of filing belated returns and interest and penalty waivers. Now, non-filing of returns could result in GSTIN cancellations.

2. Return filing measures are made stricter

The Finance Bill 2022 has made GST return filing laws even stricter by amending both Section 37 and Section 39. Section 37 governs the details of outward supplies to be furnished, for example, the GSTR-1. Section 39 governs the summary of inward and outward supplies, input tax credit claimed, and taxes paid, for example, the GSTR-3B. 

In Section 37, a new sub-section (4) added states that taxpayers will be not be allowed to furnish their details of outward supplies for a tax period if the same remains pending for any previous tax period. Similarly, Section 39 was amended with sub-section (10), now disallowing taxpayers from filing their return under Section 39 if their return under Section 37 for the said tax period remains pending. These amendments would ensure that all previously pending returns of a taxpayer are now filed.

3. A new section and additional conditions to avail input tax credit

Input tax credit laws have seen a slew of amendments in recent times. However, Finance Bill 2022 substituted the entire text of Section 38 of the CGST Act, which previously governed the furnishing of details of inward supplies. 

Section 38 is now titled ‘Communication of details of inward supplies and input tax credit’ and prescribes the manner, conditions and restrictions for availing input tax credit. It also governs the communication of details of inward supplies and input tax credit to the recipient via an auto-generated statement and does away with a two-way communication process in return filing. Previously, the seller’s details that were populated in the GSTR-1 had to be accepted by the buyer in the GSTR-2, and then the buyer could claim ITC in the GSTR-3B. Now, GSTR-2B is the legal document for determining ITC eligibility for a tax period.

Section 16(2) has also been amended to introduce a new clause (ba)  with an additional condition to avail input tax credit if the same is not restricted under Section 38, as per the details communicated to the buyer in Form GSTR-2B. Further, taxpayers can now claim input tax credit until 30th November of the following financial year, as against the previous deadline of 30th September.

4. Provisional ITC is no longer a concept in the GST law

A recent CBIC notification stated that taxpayers would no longer be allowed to claim provisional ITC from 1st January 2022. Currently, the new amendment in Section 41 of the CGST Act completely does away with the concept of provisional ITC. Section 43A is now omitted to corroborate with the amendment in Section 41 of removal of provisional ITC.

These amendments put added pressure on businesses to accurately report ITC each month. Excess ITC could lead to demand notices and penalties, while suboptimal ITC could hit cash flows. 

5. A series of amendments governing the electronic credit ledger

Section 49 of the CGST Act was amended to prescribe the restrictions for utilising the amount in the electronic credit ledger. The amendment also includes a provision to transfer amounts available in the electronic cash ledger of a registered person under the CGST Act to the electronic cash ledger under the CGST or IGST Act of a distinct person. A distinct person is a person with different GSTINs but under the same legal entity. This amendment helps taxpayers with multiple GSTINs to transfer excess cash balances from one state to another. 

Further, the section now provides for prescribing the maximum proportion of output tax liability that can be discharged through the electronic credit ledger. Previously, Rule 86B governed these restrictions, and certain taxpayers were required to pay a minimum of 1% of their output tax liability in cash. This amendment corroborates the corresponding CGST rule.

For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in